Fitch Attributes Bank Prepaid Card Launches to Regulation

Fitch Ratings said in a recent release that banks are offering open-loop prepaid cards as a result of the Durbin Amendment caps on interchange income and the imposition of restrictions on marketing credit cards to college students. The company says it expects prepaid marketing to grow, but it over-emphasizes the focus on people without bank accounts.

The impact on card fee generation by Durbin has prompted many banks to impose new fees on ancillary products, including the reinstatement of fees on many checking accounts, leading some customers to close accounts altogether. As a result, we believe the marketing of prepaid cards or reloadable cards is likely to increase materially, given that under-banked consumers now have fewer payment options available to them.

As Fitch notes, J.P. Morgan Chase is offering a low-cost prepaid card that provides additional fee forgiveness to those who have Chase bank accounts. American Express has launched cards with partners that aim to go beyond the traditional market of unbanked and underserved people. The prepaid industry is widening its scope.

Click here to read the Fitch press release.